Washington (Somalia Today) — Somalia has secured fresh financing from the International Monetary Fund (IMF). The Fund’s Executive Board approved new budget support and expanded Mogadishu’s three-year loan program, saying reforms remain on track despite sharp aid cuts and climate shocks.
Under the decision, the Board completed the fourth review of Somalia’s Extended Credit Facility (ECF) and granted an extra SDR 30 million (about US$40 million) in access. That raises total access under the program to SDR 105 million (about US$140 million).
An immediate disbursement of SDR 22.5 million (about US$30 million) will flow into the federal budget, lifting total disbursements so far to SDR 75 million (about US$100 million), according to the IMF press release.
Approved in December 2023 for SDR 75 million, the ECF underpins a post-debt-relief reform plan and aims to lock in macroeconomic stability after Somalia reached the Completion Point of the Heavily Indebted Poor Countries (HIPC) Initiative and secured large-scale debt relief from official creditors, as set out in the original ECF approval.
Deputy Managing Director Nigel Clarke praised the authorities for sticking to reforms “despite domestic and global challenges.”
He said they had “maintained steadfast reform implementation and strong program performance” under the IMF-supported arrangement, but warned of “persistent and sizeable foreign aid cuts, recurrent climate shocks and elevated uncertainty” that still weigh on growth and public finances.
Aid cuts and hunger
The World Food Programme (WFP) has warned that a major funding shortfall will force it to shrink emergency food assistance in Somalia, cutting coverage from about 1.1 million people in August to roughly 350,000, according to a recent funding update.
UN humanitarian reports warn that around 4.4 million people in Somalia could face hunger by April 2025, driven by drought, conflict and high food prices, the UN’s OCHA said in a hunger warning.
Climate shocks are compounding the pressure: in recent seasons, heavy floods along the Shabelle and Juba river basins have displaced hundreds of thousands of people and destroyed crops, homes and roads, according to a December 2023 situation report.
Clarke argued that these overlapping shocks underscore the need for “sound policies and the reform momentum” to continue.
He welcomed the government’s plan to expand social spending in 2026 using domestic resources and called it “a welcome initial effort,” but stressed that Somalia still needs sustained backing from development partners.
Budgets and revenue
Against this backdrop, the IMF says Somalia’s fiscal performance in 2025 “remains strong.” Clarke cited resilient domestic revenue collection, disciplined spending and progress on key fiscal reforms.
The Cabinet’s 2026 budget broadly aligns with IMF program objectives. It combines continued domestic revenue mobilisation and expenditure restraint with protection for priority spending.
The revenue strategy relies on customs modernisation, stronger implementation of the Income Tax Law and further improvements in tax and customs administration. The IMF says these steps should help move more of the budget onto a domestic tax base and gradually reduce reliance on external grants.
At the same time, the Fund is pressing for deeper reforms in public financial management and debt management. After reaching HIPC Completion Point in December 2023, Somalia cleared most of its arrears and can now access more external concessional borrowing.
The IMF wants safeguards in place before that borrowing ramps up, and Clarke said the rollout of the Pay and Grade reform and a new civil service pension scheme must “remain consistent with fiscal sustainability.”
Central bank and currency
The Central Bank of Somalia has become a central player in the reform story.
The IMF noted “commendable progress” in strengthening its institutional framework and regulatory capacity and highlighted efforts to tighten supervision of banks and mobile money operators, expand financial inclusion and upgrade Somalia’s anti-money-laundering and counter-terrorist-financing regime.
A major piece of the monetary agenda is preparation for the reintroduction of the Somali shilling and a currency board arrangement, which would require full foreign-reserve backing for new banknotes. I
MF staff say a carefully sequenced currency reform, anchored in a strong legal and operational framework at the central bank, is essential to restore trust after decades of dollarisation and widespread counterfeit notes, as outlined in a 2024 Article IV review.
Preparatory work is advancing, with legal amendments, operational planning and public information campaigns supported by IMF and World Bank technical assistance, building on earlier advice.
Beyond macroeconomic and monetary issues, the IMF Board has stressed the importance of transparency and accountability in Somalia’s emerging petroleum sector.
The authorities have pledged to apply a new, comprehensive legal framework for oil and gas when negotiating and signing contracts.
Clarke said they “remain committed to enhancing transparency and accountability in developing the petroleum sector” and urged continued efforts to strengthen governance, fight corruption and build climate resilience.
Debt relief outlook
Somalia reached the HIPC finishing line in December 2023, a milestone that triggered major debt relief from bilateral and multilateral creditors.
Since then, the program has become a key anchor for Somalia’s macroeconomic framework. Each successful review has unlocked new budget-support disbursements and signalled to donors that the authorities are still delivering on their reform commitments.
In October, IMF staff reached a staff-level agreement on the fourth review and on the SDR 30 million augmentation.
The Board’s latest decision formalises that agreement and splits the extra access across the fourth and fifth reviews, to cushion the impact of aid cuts and support higher social spending.
Clarke summed up the IMF’s message in the Board statement.
“To support Somalia’s reform strategy, sustained assistance from development partners is critical,” he said, stressing that the government must keep raising domestic revenue, strengthening financial institutions and improving governance if it wants to turn short-term support into lasting, broad-based growth.
